News and Articles

Business Owners May Be Liable for Business Debts and Transactions Through the Alter-Ego Doctrine

Erin Lloyd - Thursday, December 03, 2015

The chief purpose of forming a corporate entity is to protect the business owner’s personal assets. Incorporation protects these individuals from being held personally liable for their company’s debts and obligations. However, the use of corporate form is a privilege, and abuse of its protections can have serious consequences.

For example, when a corporate entity is so dominated by an individual that it primarily transacts the individual’s business instead of its own, it will be called the individual’s alter-ego and the corporate form will be disregarded to achieve an equitable result, Rohmer Associates v. Rohmer, 36 A.D.3d 990 (3rd Dept. 2007).

In order to prevail on an alter-ego claim, a plaintiff must establish that there was such a “unity of interest and control” between the individual defendant and the entity, or between two entities, that they cannot really be said to be separate. See Rohmer Assoc. Inc. v. Rohmer, 830 N.Y.S.2d 356, at *1 (App. Div. 2007). An alter-ego determination by a court does not technically make one entity vicariously liable for the debts of another. Rather, it results in disregarding the separateness of the entities as a legal fiction and treats them as one in the same entity for all purposes. This is applied to limited liability companies as well as traditional corporations.

“Alter-Ego” Liability Does Not Require a Showing of Fraud

It is not necessary to allege or prove fraud in order to pierce the corporate veil under the alter-ego theory. What is required is proof that a corporation is being used by an individual to accomplish his own and not the corporation’s business, and that the business owner’s control is being used to perpetrate a wrongful or unjust act. The question is whether the corporation is being used as a “shell” by the individual business owner to advance his own purely personal interests at the expense of another party, typically a judgment creditor, Port Chester Electrical Construction Corp. v. Atlas, 40 N.Y.2d 652 (1976). In making an alter-ego determination, a court is concerned with reality and not form. Wajilam Exports v. ATL Shipping, 475 F.Supp.2d 275 (S.D.N.Y. 2006). The focus is on the actual conduct of the dominating business owner and the impact of that conduct on innocent parties such as judgment creditors.

New York Courts Evaluate a Number of Different Factors

The factors relied upon by New York’s courts in applying the alter-ego theory include the use of alleged corporate funds for personal purposes, commingling corporate and personal funds, shuttling funds between personal and corporate accounts, the use of common telephone numbers and office space, using the corporation as a “shell” to advance personal rather than corporate interests, and otherwise abusing the corporate form.

When the use of an incorporation entity privilege of is abused, business owners may be held liable through the alter-ego doctrine in the State of New York. As with any legal transaction matter, individuals are encouraged to consult with an attorney before taking any official action, as every situation is unique and should be independently analyzed.

For more information, business owners can contact us here

Trackback Link
http://www.lloydpatel.com/BlogRetrieve.aspx?BlogID=13375&PostID=770315&A=Trackback
Trackbacks
Post has no trackbacks.

Recent Posts


Tags

Attracting Investment Business Law Fair Play to Pay Act Web Domains Plastic Bag Ban Independent Contractor Employee Manuals and Policies Browning-Ferris Case Business Salary History Inquiries federal Department of Labor National Labor Relations Act Employment Contracts $15 Minimum Wage Affordable Care Act Prenup Intellectual Property ACA Illegal rentals Department of Labor Immigration Status Household Employees NYC Salary History Law Technology Worker's Rights Selling Business Fair Labor Standards Act (FLSA) Non-Qualified Stock Options Tax-Deferred Savings Unions Criminal Record NLRB Fair Workweek Law I-9 Verification Fair Pay and Safe Workplace Executive Order Nanny Audit Arbitration Agreements Real Estate Law Alter-Ego Doctrine Trade Secrets Act Credit History Interview Series Fair Work Week Legislation Trademark licensing NQSO Unionization Nobel Prize Negotiating Sexual Harassment and Discrimination In The Workplace AirBnB Security Federal Contractors Sexual Harassment policy Employment Law Trademark Law Ban the Box Westchester Safe and Sick Time Laws Federal Acquisition Regulatory Council NY payroll law Westchester County implementing new leave laws Wage and Hour Law Interns as Employees entrepreneur Start-up Ventures Employer Mandate Glatt v. Fox Searchlight Pictures Executive Negotiation Hairstyle Discrimination Postnup #meToo Wage Theft Protection Act Payroll Scams Mandatory Class Action Waivers Transgender protections Divorce New York City Human Rights Law Overtime Exemptions Minimum wage Public-Sector Union Fees Newsletter Employment Offer/Agreement Lactation Law Freelance Isn't Free U.S. Department of Labor Apple vs. FBI sexual harassment training Executive Severance commuter benefits Housing Law Internet Law marijuana usage Trade Secrets Facebook Privacy and Litigation Fair Labor Standards Act NYC Human Right's Law's Joint-Employer Relationship New York Earned Sick Time Act Sexual Harassment Interns Corporate Law Employee Salary Histories Womens Rights Overtime Rules Credit Privacy Glatt v. Fox Searchlight Pictures, Inc. Paid Family Leave Credit Checks Marijuana Testing Federal Overtime Law Right to Unionize National Labor Relations Board stocks Firm Announcements employment discrimination lawsuits workplace discrimination Landlord-Tenant Law Domain Name LinkedIn Health Care New Address graduate students Workplace Requirements drug testing Human Rights Law Pregnancy EEOC Filing Requirement NYC Sexual harrassment law Fair Chance Act

Archive

EDIT - blog-container - This controls the styles for the headings

EDIT - BlogTagCloud - Font style

description

  • EDIT  - post-body - Font style

EDIT - side-panel - This is the colour of the sidebar headings

Snap | BC Module - Blog - Blog Description

Snap | BC Module - Blog - Blog Title

EDIT - Snap | BC Module - Blog - Date - This is the date box style

EDIT - Snap | BC Module - Blog - Post Content - Font style

EDIT - Snap | BC Module - Blog - Post Title - Heading style

EDIT  - Snap | BC Module - Blog - Sidebar Content - Font style

EDIT - Snap | BC Module - Blog - Sidebar Title - Heading style

latest blog title snap text

 

Disclaimer: Nothing on this website is or should be construed as legal advice.
An attorney-client relationship does not exist with our firm unless a signed
retainer agreement is executed, and we do not offer legal advice through
this site or any of the content located on it. For legal advice for your
particular circumstances, please contact us directly.